TOKYO: A gauge of global stock markets rose on Thursday while the dollar dropped and global bond yields plunged, with the 10-year U.S. yield falling below two percent, after the Federal Reserve signalled possible interest rate cuts later this year.
MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.6% while Japan’s Nikkei gained 0.6%.
The MSCI ACWI, which incorporates readings of 49 equity markets across the world, gained 0.3% on Thursday. It has recovered a large part of its 6.7% losses made after U.S. President Donald Trump threatened new tariffs on all of China’s imports last month.
Signs that China and the United States are returning to the negotiating table after a six-week hiatus also bolstered risk sentiment.
The rally in stocks comes as a host of Asian central banks are scheduled to hold policy meetings later in the day, with most expected to flag moves toward looser monetary settings.
The Bank of Japan kept monetary policy steady on Thursday, preferring to save its dwindling ammunition, but speculation is rising it may further loosen its ultra-easy stance later this year.
“As the Fed’s policy is turning, central banks in many other countries will face pressure, including those from markets, to ease their policy,” said Hiroshi Yokotani, portfolio strategist at State Street Global Advisors.
On Wall Street, the S&P 500 gained 0.3% to 2,926, just 19 points off its record closing high hit on April 30.
The U.S. Federal Reserve on Wednesday signalled interest rate cuts beginning as early as July, saying it is ready to battle growing global and domestic economic risks as it took stock of rising trade tensions and growing concerns about weak inflation.
The bulk of Fed policymakers slashed their rate outlook for the rest of the year by roughly half a percentage point, and Fed Chairman Jerome Powell said others agree the case for lower rates is building.
Many investors viewed the overall tone as more dovish than their expectations, sending the 10-year U.S. Treasuries yield to as low as 1.974%, its lowest level since November 2016. It was as high as 2.8% in January.
Japanese 10-year bond yields slipped 1.5 basis points to minus 0.155%, matching three-year lows while Australian yield hit a record low below 1.3%.
U.S. money market derivatives, such as Fed funds futures and overnight indexed swaps, are fully pricing in a rate cut of 25 basis points at next policy review on July 30-31, with about one-third chance of a bigger 50 basis point cut.
A total of 75 basis point reduction is priced in by the end of year.
However, such aggressive rate cuts when the stock prices are so close to record peaks would be rare, if not unprecedented, making some investors nervous about whether the Fed may be over-reacting.
“It seems the Fed is getting ahead of risk and doing whatever it takes to avoid downside implications due to a potential slowdown,” said Robin Anderson, senior global economist at Principal Global Investors in Des Moines, Iowa in the United States. “However, in the event inflation picks backs up, I’m apprehensive the Fed could be behind the curve if rates do in fact get cut too soon.”
Many investors think rate cut expectations could be rolled back if Washington and Beijing make some headway in their talks.
“While we expect ‘insurance’ rate cuts this year, we think the timing and magnitude of any policy easing is uncertain and somewhat dependent on U.S.-China trade relations,” said Andrew Wilson, CEO of Goldman Sachs Asset Management for EMEA and global Head of fixed income.
U.S. Trade Representative Robert Lighthizer said he will confer with his Chinese counterpart Vice Premier Liu He before next week’s meeting between President Donald Trump and Chinese President Xi Jinping in Osaka.
The Chinese yuan has recovered over the past couple of days on hopes of U.S.-China talks next week on the sideline of Group of 20 summit.
The offshore yuan traded flat at 6.8916 to the dollar , after having hit a five-week high of 6.8835 earlier.
The euro rose 0.3% to $1.1254 after the Fed’s dovish signals undermined the dollar’s yield attraction.
The dollar fell 0.5% on the yen to hit a five-month low of 107.57 yen extending losses after the Bank of Japan stood pat on policy.
The British pound rebounded 0.25% to $1.2674 from Tuesday’s 5-1/2-month low of $1.2507 as investors trimmed their short bets before the Bank of England’s policy meeting on Thursday where it may strike a more hawkish tone than those of its peers.
Gold jumped above its long-held resistance around $1,350 per ounce to hit its highest level since September 2013, rising to as high as $1,392.3. It last stood at $1,362.20, up 1.4%.
Oil prices held firm, underpinned by a larger-than-expected decline in U.S. crude inventories.
U.S. West Texas Intermediate (WTI) crude futures rose 1.1% to $54.33 a barrel.
Members of the Organization of the Petroleum Exporting Countries (OPEC) agreed to meet on July 1, followed by a meeting with non-OPEC allies on July 2, after weeks of wrangling over dates.
Oil producers will discuss whether to extend a deal on cutting 1.2 million barrels per day of production that runs out this month.
SHANGHAI, June 4 — Asian shares fell today as weak economic indicators and an intensifying Sino-US trade war inflamed concerns about global growth, supporting safe-haven assets such as bonds. European equities are also expected to fall. In early…
SHANGHAI: Asian shares fell on Tuesday, following a volatile Wall Street session as weak economic indicators and an intensifying Sino-U.S. trade war inflamed concerns about global growth, supporting safe-haven assets such as bonds.
Investor focus has shifted to monetary policy this week with Australia’s central bank all but certain to cut interest rates to a fresh low at its meeting on Tuesday and India also tipped to ease on Thursday.
Comments from the Federal Reserve on Monday, meanwhile, raised expectations the U.S. central bank is moving closer to a rate cut, as did a closely watched U.S. factory survey.
“Unless there’s a circuit breaker, and it may come in terms of a Fed cut, or it may come in terms of more Chinese stimulus or the European Central Bank later this week…equity prices and bond rates are going to continue to go lower,” said Greg McKenna, strategist at McKenna Macro.
The ECB holds its next policy meeting on Thursday and is expected to keep settings unchanged though there is growing speculation it could shift to a more dovish footing.
Losses across Asian equity markets on Tuesday followed falls on Wall Street overnight that saw the Nasdaq drop into correction territory. MSCI’s broadest index of Asia-Pacific shares outside Japan was down 0.3%, after earlier rising as much as 0.18%.
The broad index was pulled lower by Chinese shares. China’s blue-chip CSI300 index was 1.17% lower, and the Hang Seng lost 0.65%.
Seoul’s Kospi gave up 0.16%.
Defying the regional selloff, Australian shares were up 0.1% ahead of the expected interest rate cut by the Reserve Bank of Australia, as the bank hopes to revive growth.
Japan’s Nikkei gave up early gains to turn down 0.42%.
Underscoring slowdown concerns, U.S. manufacturing growth eased in May to its weakest pace in more than two-and-a-half years, defying expectations for a modest rebound.
Hostile rhetoric between Washington and Beijing continued, on Monday as U.S. President Donald Trump’s administration said that China was pursuing a “blame game” in recent public statements.
Adding to broader investor worries are fears that U.S. antitrust regulators could target Alphabet, Facebook, Apple and Amazon.
News of U.S. government plans to investigate the tech giants dragged down tech shares on Monday, driving the Nasdaq 1.61% lower to 7,333.02. The drop took the index more than 10% lower than its May 3 closing record.
The S&P 500 lost 0.28% to 2,744.45 and the Dow Jones Industrial Average eked out a 0.02% gain to 24,819.78.
U.S. Treasury yields rose slightly on Tuesday but remained near recent lows. U.S. 10-year notes yielded 2.1021%, up from a U.S. close of 2.081%, having touched its lowest level since September 2017 on Monday.
The two-year yield rose to 1.8837% compared with a U.S. close of 1.84%.
The fall in the two-year yield reflects raised expectations of a more accommodative Fed.
St. Louis Fed president James Bullard on Monday said that a U.S. interest rate cut “may be warranted soon” given risks to global growth posed by trade tensions and weak U.S. inflation.
Gold was down 0.11% at $1,323.27 per ounce, but still near three-month highs, and Japan’s yen strengthened, with the dollar dropping 0.05% against the Asian safe-haven to 108.01.
“Risk aversion has also been seen with the yen carry trade unwinding as the markets comprehend that the U.S. technology containment strategy towards China is unlikely to reverse,” analysts at Jefferies said in a note.
“In the short term, positioning has become so bearish that ‘a ceasefire’ could spark a risk rally.”
The euro was 0.11% stronger at $1.1252, while the dollar index, which tracks the greenback against a basket of six major rivals, was up 0.03% at 97.175.
Crude prices whipsawed, resuming their declines after a brief bounce on mounting trade worries.
U.S. crude was down 0.24% at $53.12 a barrel and Brent crude dropped 0.42% to $61.02 per barrel. – Reuters
SHANGHAI, June 4 ― Shares in Asia inched higher and safe-haven assets gave up some overnight gains yesterday, as investors paused for breath after a volatile Wall Street session, but deeper concerns about growth have capped broader improvements in…
WELLINGTON: New Zealand’s central bank cut interest rates to a record low Wednesday, the first reduction in two-and-a-half years as policymakers look to provide support in the face of slowing economic growth.
The move comes as central banks around the world take a more dovish stance on monetary policy as the global economy stutters and the China-US trade war rumbles along.
The Reserve Bank of New Zealand reduced the official cash rate to 1.5 percent from 1.75 percent, where it has been since November 2016, and just months after saying it expected it to keep them on hold until 2021.
“The (bank) decided a lower OCR (Official Cash Rate) is necessary to support the outlook for employment and inflation consistent with its policy remit,” governor Adrian Orr said.
The New Zealand dollar dropped half a US cent to 65.55 US cents on the announcement, with analysts tipping another rate cut before the end of the year.
“As unemployment rises and growth remains subdued in the second half of the year, we think the bank will cut rates to 1.25 percent in November,” Capital Economics economist Ben Udy said.
Westpac Bank head of New Zealand strategy Imre Speizer described the move as a “dovish surprise” and said the central bank had left the door open for more cuts.
Economic growth had slipped below 3.0 percent in 2018, with primary industries accounting for much of the drop.
Orr said the outlook for employment growth was subdued, with unemployment currently sitting at 4.2 percent, and inflation was expected to rise slowly from 1.5 percent in the year to March.
“Given this employment and inflation outlook, a lower OCR now is most consistent with achieving our objectives and provides a more balanced outlook for interest rates,” he said.
He cited an uncertain global outlook, poor business sentiment and “softness” in the housing market as some of the reasons behind the decision.
The lower global growth, particularly in major trading partners such as China and Australia, prompted the bank to take action.
The decision was the first taken by the bank’s seven-person Monetary Policy Committee, with the governor previously solely responsible for setting the base rate.
Orr said the committee’s decision to cut was unanimous.
SHANGHAI: Global financial markets tumbled on Monday after U.S. President Donald Trump unexpectedly jacked up pressure on China to reach a trade deal in the midst of negotiations, saying he would hike U.S. tariffs on Chinese goods this week.
Equity markets, which have been largely expecting the two sides to reach a trade accord soon, fell sharply as further talks to end their bruising trade war were thrown into doubt.
Chinese shares plunged more than 6 percent at one point, while U.S. stock market futures fell close to 2 percent. Oil prices sank and the Chinese yuan weakened sharply.
Trump sharply escalated tensions between the world’s two largest economies with tweeted comments on Sunday that trade talks with China were proceeding “too slowly”, and that he would raise tariffs on $200 billion of Chinese goods to 25 percent on Friday from 10 percent.
He also said he would target a further $325 billion of Chinese goods with 25 percent tariffs “shortly”.
The tweets upended the previously calm market mood that had benefited from signs of improving economic growth in China and the United States, and from comments from Trump and other senior U.S. officials that trade talks were going well.
The Wall Street Journal reported on Monday that China was considering cancelling trade talks scheduled for this week following Trump’s threats.
“I think this has got the potential to be a real game-changer,” said Nick Twidale, Sydney-based analyst at Rakuten Securities Australia.
“There is still a question of whether this is one of the famous Trump negotiation tactics, or are we really going to see some drastic increase in tariffs. If it’s the latter, we’ll see massive downside pressure across all markets,” he said.
MSCI’s broadest index of Asia-Pacific shares outside Japan was down 1.9 percent, after earlier losing more than 2 percent.
Chinese blue-chips lost more than 6 percent at one point in the morning session, having closed higher before a three-day national holiday amid expectations that pressures on China’s economy were easing. They later clawed back some losses, and were last down 5.3 percent.
The drop in Chinese shares came despite a move on Monday by China’s central bank to cut reserve requirements for small banks to help boost lending to small and private firms.
Australian shares were off 0.9 percent.
Japanese financial markets remain closed until Tuesday for a national holiday, but Nikkei 225 futures were down 2.3 percent at 21,965.
E-Mini futures for the S&P 500 slid 1.9 percent, erasing memories of gains on Friday after the U.S. payroll data had helped to lift Wall Street and signalling a rough open for U.S. stocks on Monday.
“The risk for (Trump) is that the Chinese don’t play ball and don’t go ahead with the negotiation,” said Shane Oliver, head of investment strategy at AMP in Sydney.
“It’s not in his interest for shares to go down as it would hit U.S. business confidence and investment, and that would shoot up unemployment. And that would be a risk for his re-election, too,” he said.
MORE EASING ON THE WAY?
The flight from riskier assets boosted interest in safe havens, pushing U.S. Treasury futures up 19 ticks. Data from CME Group showed the market now sees a 58.5 percent chance of a Federal Reserve rate cut by the end of the year.
Chinese 10-year treasury futures also jumped, with the most-traded contract, for June delivery rising as much as 0.5 percent. They were last up about 0.3 percent at 96.850.
“The intensified trade and geopolitical risks are likely to prompt the regional central banks for more stimulatory policies,” analysts at ING said in a note. “We expect the majority of Asian central banks meeting this week to cut their policy rates.”
As investors flocked to the safe-haven yen, the dollar dropped 0.5 percent against the Japanese currency to 110.56 .
But China’s yuan plunged, with the offshore unit weakening to 6.8215 per dollar, its weakest level since January 10, before paring some losses.
The onshore yuan weakened nearly 1 percent to 6.7980 per dollar before bouncing back to 6.7880.
The euro was down 0.13 percent on the day at $1.1186. The dollar index, which tracks the greenback against a basket of six major rivals, was barely higher at 97.538.
In commodity markets, Trump’s tweets sparked a plunge in oil prices. U.S. crude dropped 2.2 percent to $60.58 a barrel and Brent crude fell 2 percent to $69.45 per barrel.
The tweets have compounded pressure on prices amid signs of a rise in U.S. output, which has surged by more than 2 million barrels per day since early 2018.
Spot gold jumped 0.3 percent to trade at $1,282.80 per ounce.
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